Trade and industry secretary Stephen Byers has blocked Bupa's proposed £230m acquisition of Community Hospitals Group (CHG) after finding it would not be in the public interest.

Byers ordered an inquiry into the deal in June saying that it raised competition concerns about both the UK private medical insurance and private medical services markets.

Byers said: "I have accepted the Competition Commission's proposed remedies for these adverse effects: that Bupa and CHG be prohibited from merging and the Saloman's shareholding in CHG be disposed of."

Bupa lent Schroder Salomon Smith Barney £70m in May to buy a 26.8% stake in CHG on its behalf in a warehousing agreement. This stake now has to be disposed of within six months on terms agreed with the OFT.

At current market prices Bupa faces a loss of up to £14m on the shares, but a spokesman said he believed the shareholding had "clear strategic value to a number of parties".

He added: "There is no way of knowing if other people are interested in buying that stake or what they are interested in paying. It is possible that there will not be a loss on the shares."